Business group backs taxing worker health benefits Taxes would be part of health reforms

similar idea is being weighed by Clinton

December 19, 1992|By Los Angeles Times

WASHINGTON -- In a dramatic policy shift, a trade group representing many major employers is backing a plan that would require workers to pay income taxes on health care benefits that exceed the cost of basic coverage.

The Association of Private Pension and Welfare Plans, a trade group whose board members include Eastman Kodak, Sun Oil, AT&T, US West, Southwestern Bell, American Express, Exxon, Mobil and other major employers, has adopted a new stance that "reverses 25 years of policy in many ways," Ellen Goldstein, the group's director of health policy, said yesterday.

She said that the group believes the taxation of benefits will encourage employers and workers to seek less expensive ways to get care, while a federal mandate for all firms to provide coverage will solve the problems of millions of uninsured workers and their families.

The association's endorsement comes amid increasing indications that such a proposal could well be a key element in the Clinton administration's health-care reform initiative.

But any effort to tax benefits is certain to draw strong and determined opposition from trade union members and many other Americans covered by health plans with extensive benefits.

"People will see this as a tax increase on the middle class," said Karen Ignagni, health policy director for the AFL-CIO. "People have forgone wages to maintain health-care benefits during the 1980s, and now they are being told they are to blame for high health-care costs, and the government will make them pay more taxes."

President-elect Bill Clinton backed the tax proposal in an interview published yesterday in the Wall Street Journal in which he said, "There has to be some personal responsibility in this health-care system we set up. You don't want to punish necessary access. I don't mean that. But once you guarantee a threshold of access there ought to be some limit to utilization, I think."

Companies now deduct from their taxes as business expenses the cost of health insurance for their employees. The money they spend for coverage does not count as salary for workers.

Mr. Clinton's health advisers want to limit companies' spending for health care by directing workers into group health plans, such as health maintenance organizations (HMOs), which deliver care for a fixed monthly fee and restrict access to a selected group of doctors.

That can be done by imposing new tax burdens that discourage companies and their workers from having benefits packages that are too costly and inefficient. The increased tax liability can be accomplished by limiting health-care deductions that companies may take or by making workers pay more taxes.

"It's a flat-out take-away," said Rob McGarrah, director of public policy at the American Federation of State, County and Municipal Employees. "This is something we definitely oppose, and we are working and communicating our views at every level of the transition [team of Mr. Clinton]," he said.

Businesses that provide health insurance spend an average of $3,500 a year for each worker.

Under plans being considered by Mr. Clinton's health advisers, a limit would be placed on the amount of tax-free benefits a worker may receive.

That ceiling could be linked, in one option, to the least expensive health care plan with an adequate benefit package in a particular geographic area.

For example, a health maintenance organization might provide coverage for an average cost of $2,000 a year.

The value of any benefits above $2,000 would be considered taxable income, just as if the worker had received a raise.

If all health benefits were considered taxable income for employees, American workers would pay an estimated additional $40 billion in federal income taxes.

The amount of additional taxes under a Clinton plan would depend on the size of a standard benefit package.

Mr. Clinton's health-care advisers believe the economic threat of higher taxes would force both companies and workers to search for lower-cost health delivery systems, such as HMOs.

"This could mean major restrictions on choice and quality for middle-class consumers," insists Ms. Ignagni, the AFL-CIO's health policy director.

The employer trade association believes that the taxation of benefits, combined with a new law forcing all employers to provide health insurance, is the only way to control spending while assuring that all Americans have access to good health care.

The group's directors held a special meeting Tuesday, making the "historic decision" to support "comprehensive reform of the nation's health care system," James A. Klein, the executive director, said in a letter to members dated Thursday.

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